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Junk health insurance

Stingy plans may be worse than none at all

Consumer Reports magazine: March 2012

It might seem to be health insurance, if you don’t look too closely, and most people don’t. The premiums are surprisingly affordable. And so millions of unemployed people, service industry workers, and those taken in by fast-talking telemarketers sign up. They may think they’re insured—until they have a medical problem and find out that their coverage is as skimpy as a hospital gown.

The Affordable Care Act was supposed to usher in a new era of consumer-friendly health care. For instance, insurers are no longer allowed to put outrageously low limits on the amount they pay out for medical care in a year or lifetime.

While millions of Americans have benefited from that and other reforms, many are still prey to the kind of skimpy “junk” plans the new law was designed to eliminate. Some plans, known as mini-meds, are operated by employers and brand-name insurance companies with special dispensation from the federal government. Others, such as health discount cards and fixed benefit indemnity plans, from companies you’ve probably never heard of, are so meager that regulators don’t consider them to be health insurance at all—though that’s frequently not clear to consumers. And some of the companies operate one step ahead of the law.

Legal but inadequate

Surgery delayedJudith Goss put off cancer surgery while she searched for a way to pay for it.

Judith Goss, 48, of Macomb, Mich., believed that the Cigna plan she obtained through her job at the Talbots retail chain was “some type of insurance that would cover something.” When the store she worked at closed in January 2011, she even paid $65 a month to keep the coverage through COBRA.

“I was aware that it wasn’t a great plan, but I wasn’t concerned because I wasn’t sick,” she says. But in July 2011 she was diagnosed with breast cancer, at which point the policy’s annual limits of $1,000 a year for outpatient treatment and $2,000 for hospitalization became a huge problem. Facing a $30,000 hospital bill, she delayed treatment. “Finally my surgeon said, ‘Judy, you can’t wait anymore.’ While I was waiting my tumor became larger. It was 3 centimeters when they found it and 9 centimeters when they took it out.” After a double mastectomy, radiation treatments, and reconstructive surgery, Goss is taking the drug tamoxifen to prevent recurrence.

The Talbots Cigna Starbridge plan is one of many similar mini-med insurance products aimed at workers in industries such as retail, food service, and temporary staffing agencies. Their hallmark is extremely limited benefits, often, as with the Talbots plan, no more than a few thousand dollars a year. A Cigna promotional brochure touts the plans as “coverage for everyone” and reassures employers that they don’t have to contribute to the cost of the coverage if they don’t want to.

“Employers want to be able to tell employees they have something in the area of health insurance,” says David West, director of the Center for a Changing Workforce, a research and advocacy organization based in Seattle. “And most consumers have very little understanding of the details of health insurance until they’re faced with a catastrophic illness.”

Mini-med plans like these were supposed to become history after the passage of the Affordable Care Act in 2010. The new law says that health plans can no longer put an annual or lifetime cap on essential health benefits such as doctors, hospitals, tests, and prescription drugs.

But then, in the fall of 2010, the Wall Street Journal reported that McDonald’s threatened to drop its mini-med plan, with annual coverage limits as low as $2,000, rather than offer the more generous coverage the new law required. (The company later said that the real threat was that if its insurance company had to stop offering the plan, it would have to hastily seek out “the best affordable available options” that “would not measure up” to the ones it currently offered.) Other companies with low-wage workers were also complaining. Around the same time, the government started granting temporary waivers allowing existing mini-meds to continue until 2014. That’s when the health reform law goes fully into effect and low-wage workers will be able to obtain comprehensive subsidized coverage on their own or qualify for Medicaid.

As of January 2012, the government had given waivers to 1,231 plans covering 3.9 million people. The Cigna Starbridge products, including Goss’s plan, were some of the largest to receive a waiver.

“I’m not here to defend this coverage,” says Neil Trautwein, vice president and employee benefits policy counsel for the National Retail Federation. “It’s simply a fact of life in many industries, including retail and restaurants. In those industries, the difference between the cost of labor and the price on the shelf is pretty thin. And insurance is part of compensation.”

“There was hope that the mini-meds would be quickly gone,” recalls John E. McDonough, now a professor at the Harvard School of Public Health who, as a Senate staff member, helped draft the reform law. But the law’s creators also realized that their hopes might be unrealistic, given that until 2014, “if you lose your mini-med, you would most likely just end up with no coverage at all,” he says.

‘Insurance’ that isn’t

Other misleading products, such as fixed indemnity plans and discount cards, are aimed at people who don’t have employer group insurance, not even a mini-med, and may be having a hard time buying on their own because they can’t afford it or have a pre-existing condition.

If you’ve ever received a fax or robo-call or seen a late-night TV ad offering affordable health insurance, it was most likely for one of those products. And they’re all over the Internet.

“People go to Google and type in ‘affordable health insurance,’ ” says Robert Lisson, deputy commissioner of consumer services at the North Carolina Department of Insurance. “Chances are they’re going to get a bunch of hits on websites that exist solely to generate leads for marketers who call them back in 10 minutes. The sales pitch is that this stuff is great, as good as what you had.”

That’s exactly what happened to Ted Tenenbaum, 59, of Honolulu, who went on Social Security disability in late 2011 because of a serious chronic pain condition.He was able to continue his regular group health insurance, a $440-a-month Hawaii Blue Cross-Blue Shield PPO, through COBRA but expected to have to give it up when he and his wife moved to Florida in early 2012 to be near his brother.

“So I just went online, and at one point or another an application came up to fill in, and I gave my phone and e-mail address,” Tenenbaum says, “and very shortly after that I got a phone call from this one young lady, who left me a message, very excited, saying she had a plan for me and she had worked with people in my situation before.”

The key feature of these products is that they are not health insurance as most people think of it. What are they instead? Usually one or both of the following:

Fixed benefit indemnity plans. These plans will reimburse you a set sum, generally low, for medical services, after which you’re on your own, most likely with a load of medical debt if you experience a major health problem. The $450-a-month plan Tenenbaum was sold was a typical one: it pays $100 apiece for up to five doctor visits a year, $50 a year for screening tests, and $1,000 a day for up to 30 days in the hospital. A typical hospital stay runs about $1,850 a day, and these plans cover little if any of the associated costs, such as tests, medications, and surgery. Unlike mini-meds, which though stingy function like real insurance policies and charge very low premiums, indemnity plans can cost as much as major medical insurance.

Medical discount cards. They promise you, as the name implies, discounts on medical services and other products in exchange for a monthly fee.

While neither of those products is illegal, neither are they major medical health insurance. In fact, fixed benefit indemnity plans are not subject to the provisions of the new health reform law, and come 2014, when everyone must have some kind of health plan or pay a tax penalty, they won’t qualify as coverage.

The problem, say regulators and consumer advocates, is that all too often they’re sold to unsuspecting consumers as if they were health insurance—these days, sometimes with the implication that the plans are part of health care reform.“It’s amazing how quickly these companies appear and disappear,” says Stephen Finan, senior director of policy for the American Cancer Society Cancer Action Network. “They’re small operations that are one step ahead of the sheriff.”

In California, regulators shut down HealthcareOne, a telemarketed Arizona-based discount card program that advertised itself as “A Real Healthcare Plan Starting For As Little As About 25 Cents a Day” and “a comprehensive Healthcare Program that makes healthcare affordable for everyone.” When consumers tried to use the program, which sold for as much as $90 a month, they couldn’t find providers willing to offer the promised discounts. The receiver appointed to manage HealthcareOne’s affairs estimated that the company was bringing in $500,000 to $600,000 a month.

The National Better Living Association, a Georgia company peddling a fixed indemnity policy, misleadingly told a Montana consumer with a heart condition “that his preexisting condition was covered and, had to be, because [of] new federal health reform legislation,” according to an investigation by the Montana Department of Insurance. A pregnant customer was told “that NBLA would reduce her hospital bills by 70 percent through negotiations with the hospital.” The discounts never materialized and she was left with more than $20,000 in bills. Regulators are seeking fines and restitution from the company.

In September 2010, Missouri regulators issued more than $1 million in fines against 13 companies and individuals that sold discount plans misrepresented as comprehensive health insurance. Regulators said many were promoted through faxes advertising “AFFORDABLE HEALTHCARE PLANS!” and consumers were told, “This is not a discount plan!” One woman bought a plan to get the advertised free flu shot. A year and a half later, all she had to show for her $1,717 in payments was one denied claim … for the flu shot.

Adding to the confusion, many plans combine indemnity and discount features “in such a way as to parrot the coverage of conventional health insurance,” says a 2010 report by Colin Gordon, senior research consultant to the Iowa Policy Project.

“One strategy is to have the same plan with eight different websites and eight different names but the same pitches,” Gordon says. They are “sold and resold, branded and rebranded, down a pyramid of third-party vendors and marketers.”

Ted Tenenbaum, for instance, bought his plan through a website for an entity called USHealth Group, but his membership card displays 12 other brand names, including the real name of the company, Freedom Life Insurance Corp. of Texas, that provides the fixed indemnity plan.

“Don’t buy fixed benefit plans,” says Karen Pollitz, a senior fellow at the Kaiser Family Foundation and an expert on individual insurance. “You’ll still be uninsured but out a bunch of money.”

Are there alternatives?

The consumers targeted by these junk plans by definition have few or no alternatives—or are led to believe they don’t. But some may have pathways to real insurance if they know where to look and are not fooled into misleading coverage.

Tenenbaum found out that his Hawaii COBRA PPO will continue to cover him when he moves to Florida after all—for $10 a month less than the poor coverage of the fixed indemnity plan.

Judith Goss, the ex-Talbots employee with breast cancer and a widow with four children living on Social Security survivor benefits, eventually qualified (after several unsuccessful tries) for a Medicaid program that kicks in every month after she has spent $400 on medical bills.

And consider Geoff Hirsch, age 35, a molecular biologist from Brighton, Colo., who enrolled in an Aetna SRC mini-med when he signed on with Aerotek, a temporary staffing company, after the company he worked for folded. The plan, which cost $89 a week (about $386 a month) for himself, his wife, and their infant daughter, pays a maximum of $5,000 a year per person, with an outpatient maximum payout of just $1,500 per person per year.

After his daughter “went in to have an ear tube insertion that shot her benefits for the year,” he consulted an independent insurance broker. The broker found a PPO from Anthem Blue Cross and Blue Shield, costing about $275 a month, for which the family qualified because of their good health. It has a high family deductible of $5,000, but it’s fully compliant with the health reform law, meaning that it covers preventive services in full, with no deductible and no limit on what the insurer will pay for health care.

Avoid pitfalls when buying insurance on your own

Don’t shop from a search engine
If you Google “affordable health insurance,” you’ll see sites that promise instant quotes. Stay away from them. It’s impossible to tell which ones are legit, and you run the risk of getting a call from a telemarketer pushing junk. “Few licensed health insurance companies market to consumers in this way and even fewer sell directly to consumers,” says Mila Kofman, a research professor at the Georgetown University Health Policy Institute and former superintendent of insurance in Maine.

Look up real plans at Healthcare.gov
On this federal website you can search for all legitimate licensed health plans sold to individuals in your state. But you can’t buy a plan directly from the site. (If you live in Massachusetts, the one state that already mandates health insurance for all residents, you can buy directly from its online health exchange, MAHealthConnector.org. As of 2014, all states will have similar exchanges.)

Consult a licensed independent broker
They handle plans from multiple reputable carriers and “know which products are real and which ones are scams,” says Monica Lindeen, Montana’s commissioner of securities and insurance. They can walk you through the plan options and pricing, and may be able to find you coverage even if you have certain pre-existing conditions. Your auto and homeowners insurance broker might also offer health insurance. Or ask friends and relatives for recommendations.

Check with your state insurance department
Consumers who contact us with health insurance questions are rarely aware that health plans sold to individuals are regulated by the states. Most state insurance department websites have a guide that explains which major medical plans are licensed by the state. And 26 states now have federally funded consumer assistance programs. To find yours, search for “consumer health” at Healthcare.gov.

Make sure everything’s covered
Until health reform goes fully into effect in 2014, insurers can sell plans that don’t cover some basic medical services. Many plans don’t cover prescription drugs, or cover only generics. (Generics are a great way to save money, but some costly drugs come only in branded versions.) Some plans sold in New Jersey cover only $500 a year in outpatient diagnostic tests and don’t cover drugs or cancer chemotherapy. Avoid these types of plans, even if you don’t need the services right now. The purpose of health insurance is to protect you if and when you do.

Find out whether your group plan is a mini-med
The government requires all mini-meds with waivers to include a disclaimer that reads something like this one on a Cigna plan: “Your health coverage … does not meet the minimum standards required by the Affordable Care Act.” “If the premium is almost as much as the outpatient benefits, stay away from it,” advises Karen Pollitz, a senior fellow at the Kaiser Family Foundation. “A few of the better plans cover up to $100,000 a year. That’s still not great but may be worth it if you have no alternative.”

Know your COBRA rights
If you leave your job and your workplace has 20 or more employees, the federal COBRA law entitles you and your dependents to stay on your group plan for up to 18 months (or more in certain situations) so long as you pay the full premium yourself, which can be costly. To learn more about COBRA’s provisions, which can be complex, go to the Department of Labor’s website, at www.dol.gov, and type “Cobra” into the search box. Many states have “mini-COBRA” laws protecting employees of smaller companies.

Consider Pre-existing Condition Insurance Plans and high-risk plans
If you have a serious pre-existing condition and can’t find a carrier who will insure you, you are eligible for coverage under the Pre-existing Condition Insurance Plan created by the health reform law. Thanks to federal subsidies, premiums for the plans are comparable to commercial plans sold to healthy people. The catch is that you have to have been uninsured for at least six months to be eligible. Look up your state’s plan at PCIP.gov. Thirty-five states also offer separate high-risk plans for people who don’t want to “go bare” for six months, but premiums tend to be higher. You can find a list of these plans at www.naschip.org/states_pools.htm.

Investigate public programs
If your income is on the low side, your children may be eligible for free or low-cost insurance through your state’s CHIP program, and depending on your state’s eligibility rules, you may be able to get on Medicaid. Contact your state or local social services agency to find out whether you or your children are eligible for coverage.

If you're in the market for health insurance, check out Consumer Reports' buying guide, which features expert advice on choosing and using health insurance.

A required membership in an association you’ve never heard of
This one is tricky. Reputable associations, such as business associations or professional groups, can and do arrange for major medical insurance for their members. But the “association” you’re asked to join as a condition of buying a junk plan may exist mainly to sell you insurance, not for any other reason, and a significant portion of your monthly payment may be going to the association, not toward your actual policy benefits.

Guaranteed acceptance
Until 2014, real health insurance companies can continue to turn away people with pre-existing conditions for individual plans. Any plan other than a high-risk pool or Pre-exisiting Condition Insurance plan that lets you enroll even if you are in poor health is almost certainly junk, carefully structured to limit the plan’s maximum payout to a few thousand dollars.

A bargain-basement premium
There are no bargains in health insurance. A plan generous enough to cover the policyholder’s medical needs has to collect enough money to do that. The only safe way to lower your premium is to get a plan with a higher deductible.

“Not major medical”
If you see that phrase, beware. The policy is not comprehensive health insurance.

Discounts of “up to” a certain amount
Hucksters know that real insurance often pays a substantial percentage of your bill, often 80 percent. They’ll toss around percentage terms to make you think that’s what you’re getting with a discount card. You’re not.

No deductible
Junk marketers also know consumers hate deductibles, so this promise goes up front. They don’t tell you that their maximum payout tops out at only a few thousand dollars.

It’s marketed as “Obamacare”
A lot of people are still unsure about the provisions of the health reform law. Marketers take advantage of that by using pictures of the American flag or the White House to suggest their plans are the “affordable care” promised by the new law. They’re not. Those come in 2014.

Largest mini-med sellers

Fifty health insurance companies have federal waivers to offer “mini-med” policies until 2014. We asked the four companies with the highest enrollment why they provide those plans.

Cigna Starbridge 265,000 enrollees. “Policies are offered to … workers who typically are not eligible for any other employer sponsored-group health coverage.”

Aetna SRC 209,423 enrollees. “It’s still some coverage for people who may not have any other options.”

BCS Insurance 115,000 enrollees, including McDonald’s hourly employees. “It’s a matter of affordability. These are largely part-time and hourly workers.”